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MPEL missed our EBITDA estimate but there were some encouraging signs. Mass drop was better than we thought in Q3 and November volumes look better than October.

"Our grind mass market business has demonstrated sequential volume improvements across the reporting quarter and this growth trend has continued into the fourth quarter of this year. We have not yet reached our full potential in this segment and the recent opening of the Grand Hyatt Macau is now having a positive impact on performance. We remain on target to complete and open a number of major new entertainment attractions at City of Dreams in the coming months as part of the second phase of development, which will culminate in the launch of the Dragone-inspired show at the Theater of Dreams in approximately six months' time. We remain confident in our outlook for Macau and believe our assets are strategically positioned to capitalize on the expected growth in the market."

3Q09 CONF CALL

  • Have held commission levels at proposed levels since opening
  • Doing great in the RC segment
  • Premium direct VIP business has been strong and they estimate that their share is as high as anyone else in Macau
  • They have some heavy lifting to do on the grind side of the Mass business
  • Remain confident that their Mass business will continue to build over the next 6 months and the expansion of the amenities yet to open (night club, 50% of their retail, Dragone show)
    • LVS does say that the Cirque show is a big money loser and hasn't driven traffic
  • Grand Hyatt was a "phased delivery" - have about 400 rooms available as of today and expect all rooms to be ready by year end
  • Too early to determine impact of Grand Hyatt on their Mass business but expect it to be benefcial
  • Expect that 2H09 will be a lot better than 1H09 and expect 2010 to grow 20% for the market as a whole (assuming no financial crisis)
  • Expect to spend 115MM on completing construction
  • 4Q09 guidance:
    • D&A $75MM
    • Net Interest expense $20MM
    • Pre-opening negligible
  • Will accelerate timing of quarterly results going forward
    • I bet they got a lot of complaints from the G2E contingent... myself included!

Q&A

  • MPEL market share in Oct down due to lower hold on RC.  Oct is distorted to Mass typically, which makes their share look weak
  • They are seeing better volume in Nov than Oct
  • Any expected changes from new CE in 1 month?  Lots more talk about infrastructure resumed.  Remain very encouraged
  • Covenant on Macau credit facility?
    • Kicks in 4Q2010, needs to be under 4.5x.  Have $1.4BN net drawn now, and then will use cash from ops to lower leverage
  • If hold was normalized on CoD Mass?
    • Hold is just below 16% through the 3rd quarter.  Low hold is a function of lower length of play.  Would expect that hold will move up over time as the property matures.  Mature Mass properties have holds as high as 21%
  • Where do they think Mass drop gets to? NO COMMENT, but they have seen a 35-40% increase in drop over last 4-5 months.  Believe that they will continue to see solid growth in drop and hold there
  • New Capex at CoD?
    • End of 3Q09 - have $150MM capex liabilities which they will cash settle $115MM in the 4Q09.  The remaining are retention payments and won't get settled until the 1H2010. Then there is another $40MM of capex associated with Dragone Theatre fit out which will occur in early 2010.  Then have another $40-50MM of capex maintenance to "spruce up amenity development"
  • Have 135 VIP tables, remaining Mass at CoD. 
  • CoD hold percentage was slightly above 3% and at Altira it was just below 2.7%
    • I don't understand why they are so coy with this number
  • Grand Hyatt full range of inventory handed over the next 4-6 weeks
    • Heard that is was as low as 50 available rooms in early Nov
  • Based on their commentary on Mass Drop in July - it doesn't look like August and September grew sequentially
    • Over the last 8-10 weeks they have seen some positive volume growth and some improvement in hold as a result of better marketing and Hyatt opening. They had a very good Oct which continued into Nov
    • We did see a pickup in Mass in Oct for CoD
  • What happened with AMA agreement?
    • They are neutral on hold under the AMA agreement so there is no make whole payment due to them
  • Cost structure is roughly $1.3MM per day for both properties including corporate and centralized costs.  Hyatt pushed that number to just shy of $1.4MM per day
  • Direct VIP business at CoD is about 17% right now
  • View on 5 & 6 - would be "delighted to see them finish the building"